Friday, September 30, 2011

The Korea Fair Trade Commission (KFTC) is a ministerial-level central administrative organization under the authority of the Prime Minister and also functions as a quasi-judiciary body. The Commission formulates and administers competition policies, and deliberates, decides, and handles antitrust cases. It performs its roles and duties independently without any intervention from an outside organization. The organization is committed to four main mandates : promoting competition, strengthening consumers' rights, creating a competitive environment for SMEs and restraining concentration of economic power. To that end, the Commission enforces 12 laws including the Monopoly Regulation and Fair Trade Act (MRFTA).
On 3 January 2011, Mr. Kim Dong-soo was appointed as the new Chairman of the KFTC. Prior to his appointment, he served as the Chairman of the Korea Exim Bank and as the vice minister of the Ministry of Strategy and Finance. In an exclusive interview, he tells me about his priorities and plans ahead.

Could you tell us about your goals and priorities as chairman of FTC?
As chairman of the KFTC in charge of competition and consumer policies, my foremost goal is to make full commitment to the essential function of the organization; promoting competition and empowering consumers.
I believe such effort by the KFTC will help the value of “Fair Society", one of the administrative goals of the Korean government, is fully embraced in the market economy of Korea. With the goal of building Fair Society, the government strives to provide just reward, ensure more opportunity and fair competition and achieve social integration based on mutual trust and shared growth. In this respect, it is directly related to competition policy, whose main objective is to promote the sustained growth of the market economy based on free and fair competition.
It is also consistent with the “Ecosystemic Development” President Lee Myung-bak suggested in his speech for the 66th anniversary of the national liberation as a new market paradigm to address economic bipolarization and achieve sustained growth of the economy.
In that respect, the priority of the KFTC is to make unchanged effort for its essential mission of establishing free and fair market order and ensure the policy benefits are shared by those in a weaker position of our society such as the working class and small companies
First, the KFTC will make proactive efforts against anticompetitive conduct such as cartel in areas closely related to ordinary people’s lives, and improve distribution structure and overhaul entry regulations so that the competition-enhancing effect can be felt by market participants.
It will also come up with specific policy measures for the shared growth between small and large companies, and change the perception of the business so the business itself makes voluntary efforts toward creating an environment where they can grow together.
What do you think are the main challenges that FTC faces in ensuring fair trade?
Even though Korea’s history of enforcing competition law is relatively short --30 years-- compared to the EU or the U.S, the country has produced meaningful results in establishing sound market order. But, I believe there are many challenges that lie ahead for the KFTC to take a leap forward.
In Korea, cartels and large companies’ unfair business practices still remain as barriers to fair trade due to a combination of historical, structural and cultural factors.
First, the government-driven economic development during the 1960s and 70s created imbalance between small and large companies, and business associations have been used as a channel for participating in a cartel.
Second, small companies’ heavy dependence on large companies with dominant position in the domestic market has widened the gap in bargaining power between small and large companies, and delayed the development into the competitive market structure.
Moreover, influenced by the Confucianism which controls the fundamental part of Korean society, companies have maintained strong solidarity with one another, which has created the business environment occasionally misconstrued as to the formation of cartel. Furthermore, the contract culture where companies enter into a contract with counterparty on an equal footing through due process of law has not been fully established in the Korean business community.
In response to those challenges, the KFTC will take legal and institutional measures as well as actively support voluntary efforts by the business community to change the corporate culture with an aim to boost corporate competitiveness and establish sound market order.
What is your opinion on the central government’s pledge to foster “shared growth” between large companies and their smaller suppliers?
The past government-driven economic strategy highly focused on large companies has made imbalance between small and large companies deeply entrenched in the Korean economy, causing serious problems.
Small companies increasingly depended on large companies, which took up dominant share of domestic demand, and this widened the gap in bargaining power between them. Unfair business practices caused by the power gap between small and large companies still remain, disrupting the development of the business ecosystem.
Therefore, for sustained growth of the Korean economy, there should be further efforts to achieve the shared growth between small and large companies so that they can compete with each other on an equal footing.
To realize the shared growth of small and large companies: ① relevant laws and systems should be improved; ② corporate culture should be changed (by, for example, encouraging the signing of the Agreement on Fair Subcontract and Shared Growth); and ③ there should be active enforcement efforts against law violations.
Changes in corporate values and perception through voluntary efforts by companies are particularly important for establishing fair trade practices and the environment for the shared growth.
That is because fundamental improvement on this matter can be made only when large companies change their perception, practices, values and culture, and small companies strengthen their competitiveness.
With this in mind, the KFTC revised the Fair Subcontract Transaction Act to improve legal grounds for the shared growth between small and large companies, and supported the signing of the Agreement on Fair Subcontract and Shared Growth between 93 large companies and their 32,000 small suppliers.
The KFTC will continue such efforts in the latter half this year by improving the criteria for assessing the implementation of the Agreement so that practical benefits from the shared growth efforts (e.g., adjustment in unit prices or sales commissions) can be enjoyed also by second- and lower-tier suppliers.
Recently we saw instances of uncooperative behavior or obvious interference by businesses with a Fair Trade Commission investigation. What steps are you taking to ensure that this does not happen in the future?
Obstruction of the KFTC’s investigation constitutes an act of defiance of public authority that severely undermines law and order.
In that recognition, the KFTC will take all the possible legal measures within its authority against such violation to maintain legal order and send a clear message that the damage incurred to the company by obstruction of an investigation would be severe. For this purpose, the KFTC applies through penalty against those who interfere with an investigation by imposing administrative fines, heightening the ceiling of aggravated surcharge and bringing a charge to the prosecution.
The KFTC will continually update its investigative techniques and enhance compliance of respondent companies through valid procedures to achieve administrative objectives without causing unnecessary friction with companies subject to an investigation.
As part of the effort, the KFTC set up a digital forensics team to strengthen capability for obtaining digital evidences in May 2010, and provides staff education on investigative techniques on a regular basis.
Furthermore, it makes utmost efforts to minimize inconvenience caused by an investigation and ensure procedural fairness by, for instance, informing an investigated company on its rights and clarifying the purpose and scope of an investigation. Moreover, the Ombudsman Program is in operation to listen to complaints of investigated companies that may arise in the course of the KFTC’s investigation.
What is your message to EU investors?
The EU is a very important economic partner to Korea as the nation’s second-largest export market and the biggest foreign investor that accounts for 43% of the investment destined for Korea. Korea, the 4th-largest trading partner to the EU, also has strong presence in the EU market based on strong collaborative relationship between the two sides with around 500 companies operating there.
The Korea-EU FTA that came into effect on July 1, 2010 will open up new horizons for the economic relationship between the two sides with the accelerated market opening, strong push for corporate innovation and enhanced consumer welfare.
The KFTC will faithfully perform its role of establishing and enforcing fair rules as a “referee in the market” so that benefits from the open and free market can be maximized across the Korean economy.
The Commission will relax regulations, such as entry regulations, to ensure that all the companies in Korea do business freely regardless of their nationality, and take strict approach to unfair business practices that disrupt the market order to protect creative entrepreneurship and consumer rights.
Foreign companies operating in Korea have made a lot of efforts to keep up to date with the global standard in competition law, as shown in its active use of the Cartel Leniency Program. I hope they make continued efforts to spread the pro-competitive culture, and understand the Korean government’s firm commitment to development of the market economy.
And I assure you that the KFTC is always open to all the foreign business persons in Korea who have any complaints or suggestions in the course of doing business in Korea.